USD/JPY: Where From Here? My Best Guess a Triangle Pattern in Play…Then Higher

Quotable

I got a random tattoo the other day. It’s a red triangle, which makes everyone think I’m arty, which I’m not. I used to draw red triangles all the time. It must mean something – maybe I don’t know it yet. But I’ll figure it out.

                                    Ellie Goulding

Commentary & Analysis

USD/JPY: Where from here? My best guess a triangle pattern in play…then higher

The Japanese yen trade isn’t as easy as it used to be. Many, including me, did well during the huge rally in USD/JPY from the low 77.11 on 14 Sep 2012 to the high of 103.73 on 24 May 2013–a whopping 34.52% gain in just 179 day. Thank you Prime Minister Abe. But as you well know, there is no such thing as “easy” when it comes to trading and investing. If there is, I haven’t found it.

With the gift of hindsight it appears Mr. Market is in the process of shaking out those one-way bets long USD/JPY and short Japanese yen futures. It was a very lopsided consensus going into the high at 103.73, as you can imagine. So where does the yen go from here?

Based on the Commitment of Traders Report (COT) data, there is still an overwhelming short position in Japanese yen futures (equivalent to long positions in USD/JPY). Here are the numbers from the COT as of 27 August 2013:

Non-Commercial (smaller speculators)

  • Long 23,396 contracts or 18.7% of the total
  • Short 101,749 contracts of 81.3% of the total

Does it mean there is more to be shaken out of this lopsided futures short position, i.e. yen futures rallies further and USD/JPY falls further from here? My guess is yes. If so, it may signal the pair is completing an A-B-C-D-E triangle pattern. The weekly and daily charts and video updates I shared with my Black Swan Capital clients this morning are below…

USD/JPY Weekly: Targeting up to 106-level once this “correction” completes…

Click here to view a video update of the long-term USD/JPY forecast

USD/JPY Daily:

Please click here to view a video update of the daily USD/JPY forecast